Six years in the making, Qilu Bank aims to solidify its counter-cyclical "granary."

County-level financial business that continues to ferment in the downward cycle is becoming a new value anchor for bank performance.

In the first three quarters, Qilu Bank recorded revenue and net profit attributable to the parent of 9.924 billion yuan and 3.963 billion yuan respectively, with year-on-year growth rates of 4.63% and 15.14%.

Although, looking back over a longer period, the bank's revenue and profit growth rates over the past five years have been in a downward channel, and the 4.63% revenue increase even hit a historical low,

when compared horizontally with peers, double-digit profit growth is already rare among listed banks.

According to Xin Feng’s statistics, among the 42 A-share listed banks, only two institutions had profit growth exceeding 15% in the first three quarters, Qilu Bank being one of them.

This steady performance now can largely be traced back to forward-looking strategic planning six years ago.

While peers generally focused on urban business, Qilu Bank identified county-level finance as its core strategy;

now, its county-level deposit and loan proportions have both reached nearly 30% of the bank’s total, and the broad sinking market not only provides it with differentiated competitive advantages, but also becomes an important pillar for stable growth through cycles.

Credit Supports Profits

Looking into the details, Qilu Bank’s high profit growth stems from balanced development in "scale, price, and risk".

In terms of income structure, the contributions of interest, fee income, and investment gains to revenue were 78.24%, 10.44%, and 14.82% respectively.

The pillar business, traditional credit, saw growth in both quantity and price, supporting a 17.31% increase in net interest income, becoming the key to revenue improvement.

On one hand, Qilu Bank maintained a relatively high balance sheet expansion speed:

In the first three quarters, assets and liabilities grew by 12.93% and 13.22% respectively from the start of the year, far ahead of the industry average;

among these, loan and deposit growth were 13.60% and 10.35% respectively, and the loan-to-deposit ratio grew by 2.27 percentage points, further improving capital use efficiency.

Among various businesses, Qilu Bank’s corporate lending showed strong momentum, with related loan growth as high as 20.21%. Leasing and business services, wholesale and retail, manufacturing, and construction loans’ proportions and growth rates were all prominent.

On the other hand, Qilu Bank’s net interest margin has entered an upward channel:

At the end of Q3, the net interest margin rose slightly by 1 basis point to 1.54% compared to the previous quarter, not outstanding among peers;

but compared to the same period last year, it has increased by 8 basis points, with the recovery speed making it leading among peers.

In addition to growth in scale and price, improvement in asset quality has also provided more space for Qilu Bank’s profits.

At the end of Q3, the bank’s NPL ratio dropped by 10 basis points from the end of last year to 1.09%;

according to the research team at Zhongtai Securities, in Q3, its new NPL generation rate dropped by 59 basis points year-on-year to 0.35%, the ratio of watchlist loans remained flat, and risk sources were further controlled.

Accordingly, credit impairment losses in the first three quarters fell by 2.52% year-on-year to 3.254 billion yuan, other asset impairment losses dropped by 97.69% to 3 million yuan, releasing room for profit growth.

Notably, the small decline in provision accruals did not negatively impact Qilu Bank’s provision coverage ratio:

At the end of Q3, the coverage ratio not only did not fall but increased by 29 percentage points since the start of the year, maintaining over 350%—a relatively high level among peers;

This indirectly shows that the reduction in provision accruals is not a financial maneuver under profit pressure, but more a normal reduction with “abundant grain in store”.

Unlike other financial peers who proactively shrink their balance sheets and cut costs in downward cycles, Qilu Bank is now in rapid expansion, full of offensive momentum:

Firstly, its expansion speed has long stayed above 13%, and in the first three quarters this year climbed back to 16% year-on-year.

Secondly, it is actively opening branches to spread a denser “capillary network”;

In the past year (from Nov 10, 2024 to present), it established 21 new sub-branches, covering Jinan, Dezhou, Liaocheng, Binzhou, Laiyang, etc., and did not close any branches, with the number of outlets in net growth.

Financial data reflect this trend as well, with operating and other business expenses rising by 6.79% and 187.77% respectively year-on-year, demonstrating a rising trend of increased investment.

Xin Feng noticed that the capital adequacy ratio at Q3’s end was 14.7%, still leaving room to support further expansion. Not long ago, the “Qilu convertible bond” triggered a forced redemption clause, more efficiently supplementing Core Tier 1 capital;

Meanwhile, the cost-to-income ratio has dropped to 25.91%, remaining at a solid level for listed banks.

County-Level Contribution

Observing data from the last three years, Qilu Bank’s significant growth has become evident.

According to Xin Feng’s selection of annual compound growth rates of net profit, assets, and ROE for A-share listed banks over the past three years, Qilu Bank ranks fourth, third, and sixth among 42 peers respectively.

Compared with many banks in the southern Yangtze River Delta, Qilu Bank is virtually the only “high-growth seedling” in the north over the past three years.

In this “counter-cyclical” expansion of Qilu Bank, the power of county-level markets is no longer negligible.

Zhongtai Securities analyst Dai Zhifeng recently pointed out that Qilu Bank’s core advantage is seizing the opportunity of Shandong’s new and old energy transition policies, leveraging the province’s unique strong county economies to actively develop county-level finance and achieve differentiated competition.

By the end of 2024, loans and deposits at county-level branches reached 99.933 billion yuan and 134.414 billion yuan, each accounting for about 30% of total bank loans and deposits;

A year ago, county-level outlets already accounted for more than 40% of all bank branches.

Looking back, Qilu Bank was one of the first in Shandong to invest in county-level finance:

In 2017, it established an Inclusive Finance Department at head office level, with a County-Level Financial Management Department responsible for overall county finance work;

By 2019, county-level finance rose to a bank-wide strategy, promoted systematically from institution, resources, assessment and other aspects.

Now, after years of increasing investment in counties, Qilu Bank has formed a mature dual-wheel strategy of city and county development;

The bank said it is actively promoting county branch establishment, accelerating the sinking of financial services, and increasing the contribution and influence of counties.

This approach also strengthens Qilu Bank’s resilience to downward cycles:

During periods of housing price adjustment, household asset markdown, and reduced consumer willingness, the sinking market has shown strong risk resistance:

For example, many county residents are not sensitive to interest rates, county liability costs are low, and loans contributed by scattered farmers and SMEs are small and risks are spread, giving good asset quality assurance;

Even the “return to hometown wave” triggered by the spillover effect from first-tier cities in recent years has contributed to the rise of county economies;

A typical case is the Agricultural Bank among the state-owned mega-banks, whose main county market has become a buffer against volatility in economic downturns.

Xin Feng’s statistics show: In past years, the sinking market has become one of Qilu Bank’s indispensable core drivers for balance sheet expansion.

From 2021–2024, loan growth at county branches was 40.55%, 32.35%, 26.18%, and 15.49% respectively. Though this shows a declining trend, it still generally outpaces the overall bank level;

Deposit growth during the same periods was 33.44%, 43.04%, 20.23%, and 16.87%, forming a major support for stabilized interest margins.

As of late 2024, Qilu Bank had 83 county branches, with 62 inclusive finance centers attached to those outlets, raising county coverage in the province to 64%;

Additionally, Qilu Bank sponsored 12 village and township banks with 44 outlets and total assets of 16.026 billion yuan.

Xin Feng notes that after years of iteration and development, Qilu Bank has developed its own unique characteristics in county business:

For example, creating the “one county, one product” model, customizing schemes based on local industry strengths and funding needs. By late 2024, it had launched 80 products;

Deeply cultivating the “agriculture, rural areas and farmers” market, innovating segmented scenario-based agricultural product models from perspectives of industrial finance and ecosystem, forming product systems covering planting, storage, circulation, processing, animal husbandry, etc., including products like “Abalone Loan”, “Sea Cucumber Loan”, etc.

Meanwhile, digitalization foundations are being reinforced, focusing on process optimization and business upgrades to enhance online, scaled, and precision marketing. In 2023, the “Quanxin Rights” platform reached 45 million customer touchpoints and an above 40% increase in online inclusive loans.

However, it should be noted that rapid balance sheet expansion always has a limit.

Now, the growth rates of loans and deposits at county branches have started to decline, and the gap with the overall bank level is narrowing.

Xin Feng calculates that as of late 2024, the lead of county loan growth over overall bank levels shrank from 14.48 percentage points in 2021 to 3.18 percentage points;

This is related to the continued rise in county loan proportion, but the declining county growth rate and narrowing lead means the incremental support from counties is becoming more limited.

For Qilu Bank to continue deepening county markets, it needs both to expand breadth with more outlets to increase business coverage, and to dig deeper, strictly controlling risk while pursuing growth to avoid an NPL rebound.

This means the bank will need to ensure adequate capital in the future and be ready to face direct competition with regional rural commercial banks in its offensive strategy.

Currently, the bank’s coverage of counties in the province is just about 60%, so there is still room for growth.

Whether Qilu Bank can continue to achieve results and whether its offensive strategy can endure the cycle test remain to be seen over time.

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